Singapore banks able to withstand rising property risk, says credit rating agency Fitch

Singapore's Big Three local banks should be able to weather a significant rise in credit costs given their healthy loss-absorption buffers, says Fitch Ratings. -- PHOTO: ST FILE
Singapore's Big Three local banks should be able to weather a significant rise in credit costs given their healthy loss-absorption buffers, says Fitch Ratings. -- PHOTO: ST FILE

SINGAPORE - The property market correction in Singapore may place modest pressure on the quality of loans here but the Big Three local banks - DBS, UOB and OCBC - should be able to weather a significant rise in credit costs given their healthy loss-absorption buffers, said Fitch Ratings.

Fitch, in its latest Asia-Pacific Chart of the Month report released on Friday (Jan 30), said it expects Singapore banks' potential losses from mortgages to be minimal due to relatively healthy household balance sheets and adequate collateralisation.

This is despite residential property prices in Singapore falling 5 to 8 per cent from their peak in mid-2013, in contrast to Hong Kong where steady demand and a supply shortage continue to drive up prices.

The Singapore government's macro-prudential policies over the past few years also included measures to strengthen mortgage underwriting practices at local banks. Mortgage delinquencies remain extremely low in both Singapore and Hong Kong, Fitch said.

While it anticipates Singapore banks' loan losses to rise as the property market continues to cool, Fitch expects the Monetary Authority of Singapore to remain vigilant for signs of stress.

The agency said it remains watchful of potential second-order effects of the housing slowdown, such as weaker private consumption and rising construction company defaults.